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Stockholders' Equity
 12 Months Ended
Dec. 31, 2021
Stockholders' Equity Note [Abstract]  
Stockholders' Equity
10.Stockholders’ Equity

 

The Paltalk, Inc. Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”) was terminated as to future awards on May 16, 2016. A total of 121,930 shares of the Company’s common stock may be issued pursuant to outstanding options awarded under the 2011 Plan; however, no additional awards may be granted under such plan. The Paltalk, Inc. 2016 Long-Term Incentive Plan (“the 2016 Plan”) was adopted by the Company’s stockholders on May 16, 2016 and permits the Company to award stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other stock-based awards and cash-based incentive awards to its employees (including an employee who is also a director or officer under certain circumstances), non-employee directors and consultants. The maximum number of shares of common stock that may be issued pursuant to awards under the 2016 Plan is 1,300,000 shares, 100% of which may be issued pursuant to incentive stock options. In addition, the maximum number of shares of common stock that may be issued under the 2016 Plan may be increased by an indeterminate number of shares of common stock underlying outstanding awards issued under the 2011 Plan that are forfeited, expired, cancelled or settled in cash. As of December 31, 2021, there were 978,359 shares available for future issuance under the 2016 Plan.

 

August 2021 Underwritten Public Offering

 

On August 5, 2021, the Company announced the pricing and closing of an underwritten public offering (the “August 2021 Offering”), in which the Company sold an aggregate of 1,333,310 shares of the Company’s common stock (which includes 173,910 shares sold to the underwriter pursuant to the full exercise of the underwriter’s over-allotment option) at a public offering price of $3.00 per share. The August 2021 Offering was made pursuant to the Company’s Registration Statement on Form S-1 (Registration No. 333-257036), initially filed with the SEC on June 11, 2021, and was subsequently amended and declared effective on August 2, 2021.

 

Gross proceeds received by the Company from the August 2021 Offering were approximately $4.0 million, before deducting underwriting discounts and commissions and other estimated offering expenses of approximately $769,200. These costs were recorded in stockholders’ equity as a reduction of additional paid-in capital in connection with Staff Accounting Bulletin Topic 5A.

 

In connection with the August 2021 Offering, the Company’s common stock was approved for listing on The Nasdaq Capital Market under the symbol “PALT” and began trading on The Nasdaq Capital Market on August 3, 2021.

 

October 2021 Underwritten Public Offering

 

On October 19, 2021, we announced the pricing and closing of an underwritten public offering of an aggregate of 1,552,500 shares of our common stock (which includes 202,500 shares sold to the underwriter pursuant to the full exercise of the underwriter’s over-allotment option) at a public offering price of $7.50 per share (the “October 2021 Offering”). The October 2021 Offering was made pursuant to an effective shelf Registration Statement on Form S-3 (Registration No. 333-260063), previously filed with the SEC on October 5, 2021 and declared effective on October 14, 2021. The October 2021 Offering was offered by means of a prospectus supplement and accompanying prospectus, forming part of the registration statement.

 

Gross proceeds received by the Company from the October 2021 Offering were approximately $11.6 million, before deducting underwriting discounts and commissions and other estimated offering expenses of approximately $955,400. These costs were recorded in stockholders’ equity as a reduction of additional paid-in capital in connection with Staff Accounting Bulletin Topic 5A.

 

Stock Options

 

The following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted during the years ended:

 

    December 31,  
    2021     2020  
Expected volatility     178.0 – 197.0 %     188.0 %
Expected life of option     5.0 – 5.5       5.3  
Risk free interest rate     0.81 – 0.88 %     0.6 %
Expected dividend yield     0.0 %     0.0 %

 

The expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior to exercise. The expected life of options has been determined using the “simplified” method as prescribed by Staff Accounting Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term. The volatility of the Company’s common stock is calculated using the Company’s historical volatilities beginning at the grant date and going back for a period of time equal to the expected life of the award. The Company estimates potential forfeitures of stock awards and adjusts recorded stock-based compensation expense accordingly. The Company estimates pre-vesting forfeitures primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the stock-based awards vest.

 

The following tables summarize stock option activity during the year ended December 31, 2021:

 

       Weighted 
       Average 
   Number of   Exercise 
   Options   Price 
Outstanding at January 1, 2021   622,036   $5.53 
Granted   37,932    3.77 
Exercised during period   (61,906)   3.09 
Forfeited or canceled, during the period   (128,569)   4.06 
Expired, during the period   (33,723)   16.50 
Outstanding at December 31, 2021   435,770   $5.31 
Exercisable at December 31, 2021   394,075   $5.65 

 

At December 31, 2021, there was $71,222 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 1.96 years.

 

On December 31, 2021, the aggregate intrinsic value of stock options that were outstanding and exercisable was $149,394 and $109,644, respectively. On December 31, 2020, the aggregate intrinsic value of stock options that were outstanding and exercisable was $15,840 and $15,840, respectively. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the fair value of such awards as of the period-end date.

 

During the year ended December 31, 2021, the Company granted stock options to members of the Board of Directors to purchase an aggregate of 24,000 shares of common stock at an exercise price of $3.20 per share. The stock options vest in four equal quarterly installments on the last day of each calendar quarter in 2021 and have a term of ten years. During the year ended December 31, 2021, the Company also granted options to employees to purchase an aggregate of 13,932 shares of common stock. These options have a vesting date ranging between the grant date and up to four years, have a term of ten years and have an exercise price of $3.20 to $4.90.

 

The aggregate fair value for the options granted during the years ended December 31, 2021 and 2020 was $145,522 and $18,664, respectively.

 

Stock-based compensation expense for the Company’s stock options included in the consolidated statements of income was as follows:

 

    Years Ended  
    December 31,  
    2021     2020  
Cost of revenue   $ 67,182     $ 1,527  
Sales and marketing expense     294       90  
Product development expense     11,302       19,491  
General and administrative expense     (114,431 )     222,089  
Total stock-based compensation expense   $ (35,653 )   $ 243,197  

 

Treasury Shares

 

On April 29, 2019, the Company implemented a stock repurchase plan to repurchase up to $500,000 of its common stock for cash. The repurchase plan expired on April 29, 2020. The Company had purchased 9,950 shares of its common stock under the repurchase plan as of April 29, 2020 and has classified them as treasury shares on the Company’s consolidated balance sheets. In addition, the Company retained 22,013 in treasury shares as part of a net share exercise of stock options by former employees. As of December 31, 2021, the Company had 31,963 shares of its common stock classified as treasury shares on the Company’s consolidated balance sheets.